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Monsanto: Integration underway - Views on News from Equitymaster
 
 
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  • May 24, 2001

    Monsanto: Integration underway

    Monsanto has ended the year with a net profit of Rs 192 m on a turnover of Rs 2.4 bn. The performance for the current year is not strictly comparable with last year figures.This is because, till last year, the company had four entities operating in India. These were Monsanto Chemicals, the listed company which was a manufacturer of herbicides, Monsanto Enterprises a 100% subsidiary of the parent which was into the marketing these products, Monsanto Technologies (another wholly owned subsidiary of the parent) was engaged in the manufacture of seeds and finally, Monsanto Holdings, a third 100% subsidiary, which was holding the equity in Monsanto Chemicals!! It has now merged all the three unlisted company with Monsanto India Ltd.

    (Rs m) FY00 FY01
    Sales 1,132 2,406
    Other Income 13 24
    Expenditure 996 2,172
    Operating Profit (EBDIT) 136 234
    Operating Profit Margin (%) 12.0% 9.7%
    Interest 25 32
    Depreciation 7 57
    Profit before Tax 117 169
    Extraordinary Income 3 24
    Tax   1
    Profit after Tax/(Loss) 120 192
    Net profit margin (%) 10.6% 8.0%
    No. of Shares (eoy) (m) 4.3 4.3
    Diluted Earnings per share* 27.8 44.4
    P/E (at current price) 35.5 22.2
    (*- annualised)    

    This integration has enabled Monsanto to have a wide product portfolio consisting of herbicides, seeds and biotechnology products. The Indian company is also expected to benefit from access to latest products and technologies from the parent. Monsanto has recently increased installed capacity of the formulations plant at Silvassa to 20,000 kilolitres.

    Monsanto's chief strength has been its focus on the fast-growing herbicides segment thanks to the leadership status enjoyed by its parent in this business. The company's operating margins are amongst the best in the industry. The world market for agrochemicals is primarily dominated by herbicides, which forms 47% followed by insecticides at 32% and fungicide at 21%. By contrast, in the Indian agrochemicals market, insecticides have the lion's share of 76%, followed by herbicides with 13%. This is because insecticides are cheaper than herbicides. However, the consumption of agrochemicals is expected to move in favour of herbicides over a period of time, with steady increase in rural labour costs. This is because though insecticides are cheaper they incur higher labour cost. Further, with MNCs phasing out technical manufacturing in some parts of the world due to environmental reasons and relocating to Asian and African countries, multinational players in India, like Monsanto have better export opportunities.

    The stock is currently, trading at Rs 986, implying a P/e of 22 times for its FY01 earnings. The company has declared a bonus issue in the ratio of 1:1. Ignoring the near term concerns, the long term outlook of the company looks encouraging considering the fact that internationally the company is one of the pioneers in biotech business.

     

     

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